CMA tightens takeover rules for listed firms to curb insider trading

CMA’s fear of litigation is seen to have been behind its involvement in the prolonged dispute that went to court before it was finally resolved out of court.

Cabarcid’s profitability also changed after the takeover bid was first made making it necessary for the parties to reconsider their positions.

The new rules will be particularly difficult for companies such as Equity Bank, which has expressed interest in buying a substantial stake in the National Bank of Kenya during the planned government divestiture of its 22.5 per cent, and the National Social Security Fund’s 48 per cent in the bank.

Potential liabilities

Already, Equity holds a 24.99 per cent of Housing Finance, just falling short of the 25 per cent minimum of the mortgage lender to be considered a controlling shareholder.

The proposed rules will also require companies to clearly show the state of their finances going back several years, including the level of indebtedness and potential liabilities that can arise from transactions done before declaring intention of takeover.

If brought into force, investors will also have to keep tabs on any market moves made by their close relatives.

The rule, which defines close relative as spouses, siblings and parents, aims to check against acting in concert.

Similar rules will apply for actions in associated companies defined as ones in which the other party holds more than 20 per cent.

The nature of disclosures made by both the offerror (the one intending to take over another firm) and the oferree (the target company for acquisition) are spelt out.

It targets well-heeled investors who have sometimes made offers to selected members of the management and board of other companies without immediate disclosure to other shareholders, planting seeds for insider trading and manipulation of share prices.

The new rules demand that information be made available to all shareholders as soon as there is a reasonable appreciation that a company is the subject of a takeover attempt.

In the two most notable acquisitions in the last three years, the parties sought waivers from the CMA that allowed them to proceed without making offers to all the shareholders.

The deals involved the Sh19 billion acquisitions of CFC Bank by Standard Bank of South Africa to form CFC Stanbic Bank and the acquisition of 24.99 per cent of Housing Finance by Equity Bank and the British American Asset Managers.